Solving Smart Grid Cost Recovery

To solve the Smart Grid cost recovery dilemma requires a restructuring of the electric industry in such a way that the regulator gets the right signals. A shift from The Anti-System Utility to EWPC solves the problem, as cost recovery of AMI technologies are sent to the market with an international standard interface, that will restrict business model innovations by Second Generation Retailer - 2GR.


Solving Smart Grid Cost Recovery

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

Copyright © 2007 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. Please write to javs@ieee.org to contact the author for any kind of engagement.


Dear Mr. McNamara and Mr. Gould,

Mr. McNamara’s paper is a welcome contribution to understand the reality of the demand side of the power business. Mr. McNamara writes: “The unfortunate result is that state regulators may be reluctant to approve cost recovery or even the implementation of AMI / Smart Grid technologies without specific guarantees that benefits of the technologies will exceed the costs in the long-term.”

The problem is with the business model of vertically integrated utilities (VIUs), because of what Mr. McNamara adds: “Determining the amount of cost that will be received in rates is a challenge for all utilities planning technology upgrades.”

The problem with the business model (winning rate cases to the regulator), to which Mr. Gould adds as being of so little imagination, is the result of the regulated retailers (called by Warren Causey as “the enterprise”) in The Anti-System Utility (hit the link please). To get thing moving fast, efficient and effectively, local (states in the US and countries in the EU) politics distortions must end. To do that A Warning to the US Congress and the European Commission (hit the link also please) is advised.

The regulated retailers operate the value chain in the industry by purchasing power under contract to the generators to serve the end customers. By replacing state and countries regulated retailers with federal competing retailers under EWPC, the problem with the investment in AMI technologies, which would be acquired under competition among retailers, is taken out the scope of the regulators and into the market, while the smart grid technologies rate recovery business cases to the regulator are easier to solve. All that is required to divide the responsibility under EWPC structure is to have a worldwide standard interface between AMI and the grid technologies.

To solve the Smart Grid cost recovery dilemma requires a restructuring of the electric industry in such a way that the regulator gets the right signals. A shift from The Anti-System Utility to EWPC solves the problem as cost recovery of AMI technologies are sent to the market with an international standard interface, that will restrict business model innovations by Second Generation Retailer - 2GR.

Best regards,

José Antonio Vanderhorst-Silverio, PhD